98. Fieldman v. Asian Surety

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   No. L-23447. July 31, 1970.FIELDMEN’S INSURANCE Co., INC, petitioner, vs.  ASIANSURETY &  INSURANCE CO., INC. and THE HONORABLECOURT OF APPEALS, respondents.  Insurance; Reinsurance contracts; Where contracts provide for effectivity of policies even after cancellation.—  Where the reinsurancecontracts in question contain provisions which 37 VOL. 34, JULY 31, 197037  Fieldmen’s Insurance Co., Inc. vs. Asian Surety & Insurance Co., Inc. clearly and expressly recognize the continuing effectivity of policies cededunder them for reinsurance notwithstanding the cancellation of the contractsthemselves, their cancellation does not carry with it ipso facto  thetermination of all reinsurance cessions thereunder. Such cessions continuedto be in force until their respective dates of expiration. Special civil action; Declaratory relief; Where action for declaration of rights and obligations of parties under a contract had become moot and academic.  —Where the agreements sued upon had been terminated and therewere no claim or liability by or against any of the parties thereunder, nouseful purpose would be served by defining the respective rights andobligations of the parties under the contracts in the action for declaratoryrelief. Same; Same; Rescission cannot be sought in petition for declaratoryrelief.  —Rescission of a contract cannot be obtained in a petition for declaratory relief containing an alternative prayer that the contract berescinded. In the case at bar, there were no averments which wouldconstitute grounds for rescission. Neither are there findings of fact in thedecision of the Court of Appeals upon which rescission may be predicated. Civil action; Appeals; Appeal from Court of Appeals to SupremeCourt; Factual conclusion of Court of Appeals are binding upon Supreme  Court.  —The conclusion of the Court of Appeals that a party to a contractwas not guilty of substantial breach of the contract which would warrantrescission  ,  is factual in nature and is binding and conclusive upon theSupreme Court. APPEAL by certiorari from a decision of the Court of Appeals.The facts are stated in the opinion of the Court.  Tipon, Dizon, Velasco, Rubio & Associates  for petitioner.   Jalandoni, Jamir, Bengzon, Villegas & Zarraga  for respondents.MAKALINTAL,  J. :Appeal by certiorari from a decision of the Court of Appeals. 38 38SUPREME COURT REPORTS ANNOTATED  Fieldmen’s Insurance Co., Inc. vs. Asian Surety & Insurance Co., Inc. On various dates—between April 11, 1960 and January 9, 1961— the Asian Surety & Insurance Company, Inc. and the Fieldmen’sInsurance Company, Inc. entered into seven (7) reinsuranceagreements or treaties 1  under the general terms of which the former,as the ceding company undertook to cede to the latter, as thereinsuring company, a specified portion of the amount of insuranceunderwritten by ASIAN upon payment to FIELDMEN’S of a proportionate share of the gross rate of the premium applicable withrespect to each cession after deducting a commission. Saidagreements or treaties were to take effect from certain specific datesand were to be in force until cancelled by either party upon previousnotice of at least three (3) months by registered mail to the other  party, the cancellation to take effect as of the 31st of December of the year in which the notice was given.On September 19, 1961 FIELDMEN’S, by means of registeredmail, served notice to ASIAN of the former’s desire to be relievedfrom all participation in its various treaties with the latter effectiveDecember 31, 1961. This communication, although admittedlyreceived by ASIAN on September 25, 1961, did not elicit any replyfrom ASIAN.On December 7, 1961 FIELDMEN’S sent another letter toASIAN expressing regrets at alleged violations committed by thelatter with respect to the various treaties between them; in the sameletter, FIELDMEN’S reiterated its position that it would consider itself “no longer at risk for any reinsurance and/or cession” given byASIAN _______________  1  The seven (7) reinsurance agreements or treaties involved in this case are:Facultative-Obligatory Reinsurance Treaty-Fire dated January 9, 1961 andeffective from January 1, 1961.Personal Accident Reinsurance Treaty dated November 28, 1960 andeffective from January 1, 1961.Quota-Share Reinsurance Treaty-Specified Casualty Lines dated April 11,1960 and effective from April 1, 1960.Fire Branch Reinsurance/Retrocession Treaty dated April 11, 1960 andeffective from April 1, 1960. 39 VOL. 34, JULY 31, 197039  Fieldmen’s Insurance Co., Inc. vs. Asian Surety & Insurance Co., Inc. which might be in force on December 31, 1961. Not having receivedany formal reply from ASIAN, FIELDMEN’S sent anew a letter onFebruary 17, 1962 reminding ASIAN of the December 7 letter regarding the cancellation of all the reinsurance treaties and cessionsas of December 31, 1961. At the same time FIELDMEN’S requestedASIAN to submit its final accounting of all cessions made to theformer for the preceding months when the reinsurance agreementswere in force.Meanwhile one of the risks reinsured with FIELDMEN’S under Cession No. 61-87, Policy No. RI-1236, issued in favor of theGovernment Service Insurance System, became a liability when theinsured property was burned on February 16, 1962. Since the policywas issued on July 1, 1961, it was supposed to expire on July 1,1962. 2  The next day, February 17, ASIAN immediately notifiedFIELDMEN’S of said fire loss. And on February 26, 1962 ASIANsent its reply stating, among other things, as fol-  ______________ Fire First Surplus Reinsurance Treaty dated April 11, 1960 and effectivefrom April 1, 1960.Aviation Quota-Share Reinsurance Treaty dated April 11, 1960 and effectivefrom April 1, 1960.Reinsurance/Retrocession Agreement-Specified Casualty Lines dated April11, 1960 and effective from April 1, 1960. 2  Article 10 of the Facultative-Obligatory Reinsurance Treaty-Fire under which the policy in question had been issued provides:  “This Agreement shall take effect at January 1st, 1961 and shall apply to risksunderwritten on and after that date, and shall continue in force for an indefinite periodsubject to cancellation at anytime by either party giving to the other three months’notice of its desire to cancel such notice to expire at the 31st of December of any year.“In the event of termination of this Agreement in accordance with paragraph 1 of this Article, the liability of the FIELDMEN’S under current Cessions  shall continuein full force and effect until their natural expiry.  However, no cession shall be cededfor a period longer than twelve months.” 40 40SUPREME COURT REPORTS ANNOTATED  Fieldmen’s Insurance Co., Inc. vs. Asian Surety & Insurance Co., Inc. lows: “x x x we beg to reiterate that your letter of December 7, 1961, terminatingsaid treaties by December 31, 1961, is not in accordance with the tennisthereof, since there was no prior three months’ notice. However, consideringthe attitude express (sic) in your aforesaid letter of December 7, 1961, weare willing to waive provision that said treaties may be cancelled onDecember 31st of any year, and will consider them cancelled at the end of three (3) months from December 7, 1961, by which time we shall be able torender the final accounting you desire.” FIELDMEN’S, relying on the sufficiency of its notice of terminationdated September 19, 1961 and obviously bent on avoiding itsliability under the reinsurance agreements with ASIAN, filed a petition for declaratory relief with the Court of First Instance of Manila to seek a declaration that all the reinsurance contractsentered into between them had terminated as of December 31, 1961and to obtain an order directing ASIAN to render final accounting of the transactions between them with respect to said reinsurancetreaties as of the cut-off date.In its answer below ASIAN denied having receivedFIELDMEN’S letter dated September 19, 1961, and argued thateven assuming it did, FIELDMEN’S could not have terminated thereinsurance treaties as of December 31, 1961 because the letter wasmerely an expression of FIELDMEN’S desire to cancel the treatiesand not a formal notice of cancellation as contemplated in their reinsurance agreements. By way of special defense Asian contendedthat even if the September 19 letter were considered sufficient noticeof cancellation—thereby rendering the reinsurance agreementsterminated as of December 31, 1961—the liability of FIELDMEN’Swith respect to policies or cessions issued under two of the saidagreements (marked as Annexes A and B) prior to their cancellation

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